BGR Intial Coverage

8/8/2019 BGR Intial Coverage

1/21

India Advantage Securities Limited

Member of NSE. BSE.MCX, DP. CDSL

1

ForPrivate

Circular

Only

|May

28,

2010

|IASL

Research

w w w . i n d i a a d v a n t a g e . c o . i n

BGR ENERGY SYSTEM LTD.

KEYHIGHLIGHTS

LeadingPlayerintheBalanceofPlant(BOP)Space:Ithasemergedasaseriouspl

thepowerEPCandBOPbusinesswith itscompetitivecostadvantagearisingduet

50% inhouse BOP manufacturing. It has successfully completed many projects r

from25MWto500MW.

Huge Capacity Additions in 11th & 12th Plan to offer Ample Opportunity

Government of India is giving due thrust to augment capacities for power gene

transmission and distribution. It has set an ambitious target to add ~78,700 M

~100,000MWin11th&12thPlanperiodwithatotalinvestmentoutlayof~Rs.9,0

Of the total incremental capacity tobeadded in11thPlan,~76% willbe contribu

thermalpowerprojects,whichisthemajorgrowthdriverfortheCompany.

BGR

Energy

Systems

singed

the

MoUs

with

the

Government

of

Orissa:

The

MoUbeensigned forsettingupa1320MW (2x660) IndependentPowerProducers (I

BhapurinNayagarhdistrict,Orissa,ataninvestmentofaboutRs.6287Crore.

HealthyOrderbookPosition:BGREnergyhasastrongorderbookpositionof~Rs.1

which is~6x itsFY09Revenues,thusprovidingstrongrevenuevisibility fortheCo

overthenext fewyears. Itsorderbookhaswitnessedmorethanthreefoldgrowt

last2yearstoRs.116bn,whichmainlyincludestwoEPCcontractsandfiveBOPcont

Expanding market due to more turnkey orders: With CEA targeting for incre

1,00,000MWofgenerationcapacityintheXIIthFiveYearPlan,themarketopportun

BoPwouldalsoincreasecorrespondingly.StateGencosofMaharashtra,MPandRaj

havestartedtotenderBoPequipmentsasaturnkeypackage.Weexpectmoreutil

followthis

route

given

the

cost

benefits

and

also

lesser

hassles

of

interfacing

with

v

equipmentmanufacturers.ThiswouldincreasetheopportunityspaceforBGREnerg

ProductportfolioexpansiontobecomecompleteEPCContractor:BGREnergy ism

upthevaluechainthroughtechnicalcollaborationagreementstomanufacturecoa

andcogenerativeboilers.EPCplayerwillnotonlyenabletheCompanytoenterthe

league,butalsowouldhelpincapturingthelargermarket.

Valuations:AtCMPofRs.571,thestock istradingataforwardP/Eof23.72xFY1

21.21x FY12E. BGRs profits are expected to grow at a CAGR of 24% over the ne

years.WeexpectvaluationtobedrivenbybothgrowthinEPSaswellasnarrowing

discount between large cap companies. We initiate coverage with a Buy rating

targetprice

of

Rs.

730

per

share.

KeyRisk/Concerns

o AdversechangeinWorkingCapitalo Competitiono Delayinorderinflowo GovernmentIntervention

InitiatingCoverage

KeyData

ector CapitalGoods

BSECode 532930

BSEGroup B

BloombergCode BGRLIN

ReutersCode BGRE.BO

MarketCap(INRmn) 39,600.00

52WKHigh/Low 615.00/180.60

TotalVolume(BSE) 13924

TotalVolume(NSE) 43522

aceValue(INR) 10.00

BetaSensex 0.9378

Beta Nifty 0.9394

Recommendation BUY

CMP

Rs.571

Target Rs.730

StockReturn(1Yr) 205.36%

ShareHoldingPattern (%)

Promoters

81.31

ForeignInstitution 5.91

nstitutions 7.33

Public&Others 5.45

TusharDas

Analyst

+9166168875

[email protected]

Source:IASLResearch01/2008 10/01/2009 10/01/2010

BGREnergy BSE_SENSEX

SensexandStockMovement


2/21



2

ForPrivate

Circular

Only

|May

28,

2010

|IASL

Research


FinancialPerformanceoftheCompany:

FY2007

(18mnths)

FY2008 FY2009 FY2010E FY2011E FY2012E

NetSales(mn) 7,751.41 15,205.34 19,303.29 24,375.00 30,965.16 35,907.54

NetProfit(mn) 391.97 884.63 1,155.68 1,345.45 1,733.09 1,938.74

EBITDA(%) 11.06 10.22 10.82 10.08 10.37 10.42

EPS 36.29 12.29 16.05 18.69 24.07 26.93

P/E(x) 15.15 44.76 34.27 29.43 22.85 20.43

P/BV(x) 7.16 8.36 7.02 5.83 4.86 4.01

ROE(%) 47% 19% 20% 20% 21% 20%

ROCE(%) 47% 29% 17% 15% 17% 16%

EV/Sales 0.96 2.63 2.10 1.70 1.35 1.18

EV/EBITDA 8.72 25.78 19.40 16.87 13.05 11.28

CompanyBackground

BGR Energy Systems Limited designs, engineers, manufactures, sell and servi

rangeofsystemsandequipmentforthepower,oil&gas,refinery,petrochemica

process industries.TheCompanyalsoengineer,manufacture, procure,construc

commission projects in those same industries, which involves turnkey responsi

includingallcivilworksrequired.

KeyManagementPersonnel

B.G.Raghupathy Chairman&M.D

T.Sankaralingam ManagingDirector

S.Rathinam DirectorFinance

V.R.Mahadevan DirectorTech.&H.R

A.Swainathan DirectorSales&Mktg

P.R.EaswarKumar CFO

KEYDEVELOPMENTOFBGRENERGY

Source:IASL

Research

Source: IASLResearch


3/213

w w

ForPrivate

w . i n d i a a

CircularOnl

v a n t a g e .

|May28,

2

c o . i n

India Adv

Member

10|IASL

Re

Company

PowerProjecDivision

CaptiveDivi

Power Proj

Construction

andGasbas

Captive Pow

addressthe

power need

Chemical,Pe

CoalBasedP

Oil and Gas

meteringski

complexesa

AirFinCoole

fluidsandga

beganoperat

Environment

Desalinationapplication i

operatingin

Electrical Pr

such as Gas

(OPGW), Ext

Refineriesan

Infrastructur

beganoperat

antage Sec

f NSE. B

search

usiness - D

ts

Powersion

Oil&Equip

Divis

cts Division:

)andBOP (Ba

dCombinedC

er Division (

aptivePowe

of various in

rochemical,

werPlants,C

Equipment

s,storagetan

dgascompre

rDivision: It

esusedinth

ingin1994.

Engineering

plants,Water

Power and

996.

jects Division

Insulated Swi

ra High Volt

dPetrochemi

eDivision:Iti

ingin2004.

urities Li

E.MCX,

ivision

BGSYS

Gasent

ion

Air

It provides

lanceofPlan

yclePowerPl

PD): It has

Marketupt

ustries like St

etallurgicale

ombinedCycl

Division: It

ks,pipelinep

ssorpackages

designsand

refining,pet

Division: It d

treatment

pl

Process plant

(EPD): It des

chgear (GIS)

ge substatio

alplants,and

scapableofb

ited

DP. CDSL

ENERGYTEMLTD.

Fin

Cooler

Divison

turnkey EPC

)services for

ntstypicallyo

een carved

100MWca

eel, Cement,

tc.for

their

ca

PowerPlants

esigns and

iglaunching&

relatedtothe

anufactures

ochemical,an

esigns manuf

antsand

Efflu

and other In

igns supplies

substations,

s and Trans

whichbegan

uildingroads

EnvironmentEngineering

Division

(Engineering

coalbased Th

ver100mega

ut of Power

acity.Today

extiles, Pape

ptivepower

,BiomassPo

anufactures

receivingsys

oilandgasin

irFinCoolers

doilandgasi

actures and p

enttreatmen

dustrial plant

Electrical syst

ptical Fiber P

ission Lines

peratingin2

ndindustrial

ElectricalProject

Division

InfrastruDivisi

Procuremen

ermalPower

atts.

Project Divis

PDcanaddr

r, Pharma, Re

lants.CPD

ca

erPlantsetc.

gas condition

ems,gaspro

ustry.

whichcoolp

dustries,and

rovides Deae

plants,

whic

s, and which

ems and equi

ower Ground

to Power St

03.

buildings,and

i

f

r

p

a


4/21



4

ForPrivate

Circular

Only

|May

28,

2010

|IASL

Research


Power is a critical component for economic growth and hence economic accel

would greatly depend upon a commercially viable power sector. Demand for po

continuously

increasing

across

all

sectors

&

hence

in

order

to

match

this

inc

demand, the government of India has launched the Power for all by 2012 prog

whichittargetsanadditionalcapacityofapproximately78,700MWin11th

plan&1

MWinthe12th

planperiod.Inordertoachievesuchanambitioustarget,thegover

is giving due thrust to augment capacities for power generation, transmissio

distribution.

DEMANDSUPPLYMISMATCHTOCONTINUE

Historically India has been power starved country with power demand for outst

supply.Itisclearedforoutstrippingsupply.Itisclearlyevidencedfromthebelowcha

peakpowerdeficithasbeencontinuouslyrisingfromthelowof~11%in200304to

in2007

08.

However

slower

demand

growth

due

to

slowdown

in

overall

economy

c

withhigherpowersupplyduringAprMar09hasresultedindropinpeakpowerde

13.8%. Revival in the economy over the next couple ofyears would once again re

increase inpowerdemandwhich inturncouldresult inhighestpeakdeficit.Latest

deficitasonApril2010is15.1%.

Source:CEA,IASLResearch

INVESTMENTRATIONALE

ugeEnergyDeficitresultsinlowperCapitaConsumptionofElectricity

566.7592

612.5631.5

671.9704

500

600

700

800

200203 200304 200405 200506 200607 2007

inKWh

AnnualperCapitaconsumptionofElectricit

Source:CEA,IASLResearchSource:IEA,KeyWorldEnergyStatistics2008

Power deficit as onApril 2010 is15.1%.

Capacityaddition~78,700MW&~100,000MWin11th&12thPlanperiod


5/215

w w

Invest

~Rs.46

ForPrivate

w . i n d i a a

entopport0bn

CircularOnl

v a n t a g e .

unityof

|May28,

2

c o . i n

India Adv

Member

10|IASL

Re

Due to inade

energy in Indi

etc. Higher p

room for imp

future.

Substantial

throwupi

Inthe11th

pl

capacity of p

addition is ex

2012, we ex

tentativecap

ofhydro,76,5

India

will

adinvestment o

firmMcKins

presentanan

increase by

generation,$

Source:CEA,IA

0

100

200

300

400

500

600

700

800

900

1

Type/Sector

Thermal

Hydro

Nuclear

Total

Source:CEA,IA

antage Sec

f NSE. B

search

uatesupply

a ismuch lo

eak deficit co

rovement&h

Power ca

menseop

nperiod(200

ower to mee

pected to be

ect an invest

cityaddition

00MWofthe

300,000

Mpportunity of

y. In a Pow

nualprofitpo

00GW by 2

10billionfor

LResearch2

CAPACI

LResearch

urities Li

E.MCX,

nddistributi

erwhencom

upled with L

encethede

acity expa

ortunities:

72012),the

the country

59693 MW b

ment of $16

ofapprox.1,0

rmaland3,40

of

power

4600 billion,

ering India:T

olof$135bill

17. Of the

transmission,

3 4

EnergyG

YADDITION

Central

24840

8654

338036874

ited

DP. CDSL

n infrastructu

paredtocoun

wer Per Cap

and forpow

nsion in p

overnmentis

s growing de

2012. Even

bn. During t

,000MWisMWofnucle

capacity

over

according to

e road to20

ionto$160bi

total investm

and$190billio

5 6

neration(BU)

ARGETIN11t

State

23301

3482

26783

re, theperca

tries likeCana

ita Consumpti

rwillcontinu

blic and p

planningtoa

mand. In the

if we conside

e 12th

Plan,

lanned,com

arcapacity.

the

next

dea leading ma

7,McKinsey

llion,asthed

ent, $300 bi

nfordistribut

7

Grow

h PLAN(MW)

Privat

1155

3491

1504

pitaconsump

da,US,Japan

on provides

ously increase

rivate sect

dabout78,7

Thermal sect

60% comple

according to

risingof20,0

cade,

presentagement con

said, thissec

emandofpo

llion is requi

ion.

9

th(%)

e Tot

596

156

33

787

t

,

o

9

2

0


6/216

w w

ForPrivate

w . i n d i a a

CircularOnl

v a n t a g e .

All

MW

Percen

Source:

|May28,

2

c o . i n

India

Co

82

tage(%)

CEA,IASLResea

India Adv

Member

10|IASL

Re

InstalledG

HUGEOPP

Balance of Pl

except Boiler

invested in p

distribution,

employed

in

segmentand

75,200MW d

opportunityo

CEAistargeti

whichwaspl

opportunitys

59,693MWw

therequirem

T

al Gas

096 17056

2 11

10,000.00

20,000.00

30,000.00

40,000.00

50,000.00

60,000.00

70,000.00

80,000.00

90,000.00

100,000.00

MW

he

public

selonewilladd

012.NTPCun

fprivateco

nethirdofth

PlanTarget

Source:CEA

rch

antage Sec

f NSE. B

search

nerationC

RTUNITY

ant (BOP) inv

, Turbine an

ower generat

o as to effe

power

generherestRs45

uring the Tw

fRs1,35,360c

gacapacitya

nned inthe

paceforBoP

hichwerepla

ntforBoPeq

ermal

Diesel T

1200

1

Therm

ctor

power

eabout15,000

dertakes17p

panies inthe

etotalinvest

orGenerati

,IASLResearch

urities Li

E.MCX,

pacityaso

ORTHEBO

olves constru

Generator (

ion, another

tively utilize

tion

Rs.

605

0goestoBO

elfth Plan pe

r(i.e.~Rs27,0

dditionof1,0

Ithplan.Oft

quipments)is

nedintheXIt

ipmentsisal

Nu

otal

00351 4

64

l H

uipment

maMW,andpri

rojectstotalin

powersector

entbyendo

nCapacity

ited

DP. CDSL

n31-01-20

PPLAYER:ction of com

BTG) equipm

s 100 has to

the power g

5

goes

for

thSegment.Wi

riod alone, it

72crofanave

,000MWint

is,thetherm

around75,20

hplan,implyi

oexpectedto

clear H

(Ren

120 3

3

dro

ufacturer

Bhateplayers

gto75,000M

isahealthys

the11th

five

ddition

10

onents requi

ents. Typicall

be invested

nerated. Out

e

BTG

(Boileththeplanne

translates i

rageannualo

eXIIthplana

alcapacitiesp

0MWforthe

ganincrease

increasecorr

ydro

ewable) (

6885

24

Nuclear

Upto10thPla

11thPlan(Pla

12thPlan(Pla

rat

Heavy

Elilladd10,000

Wcapacityby

ignandthisw

earplan.

red in power

, for every

in transmissi

of Rs 100 w

rTurbine

Gen

thermalcap

to a potenti

portunity).

sagainst78,0

lanned(which

XIIthplanas

of20%.Acco

spondingly.

RES@

MNRE)

G

T

15427 15

10 1

RES

ned)

ned)

ectricals

Ltd

(MWbythe

2017.Partici

ould increase

h

e

a

6


7/21



7

ForPrivate

Circular

Only

|May

28,

2010

|IASL

Research


PotentialforBoPOpportunity

11th

Plan 12th

Pla

Thermal

Capacity

(MW) 59693

75200Cost/MW(Rscr) 4.5 4.5

TotalThermalCapex(Rscr) 268619 338400

BoPShare(%) 40 40

PotentialBoPOpportunity(Rscr) 107447 135360

Sl.NO BOP Component No.of Vendors

1 CoalHandlingPlant(CHP) 8

2 AshHandlingPlant(AHP) 9

3 Demineralized(DM)waterPlant 5

4 CoolingTower 5

5 Chimney 4

6 FuelOil(FO)System 4

7 WaterTreatment

Plant 5

8 CWSystem 3

9 Control&Instrumentation(C&I) 4

10 Switchyard/Switchgear(HT/LT) 5

11 Structural/Switchgear(HT/LT) 3

12 FireprotectionSystem 6

Source:CEA,IASLResearch

RequirementsofBOPs

SR

NO.BOPComponent

BOPused

during10th

Plan

BOPsRequired

11th

yrplan

BOPsReq

12th

yrp

1 CoalHandlingPlant(CHP) 23 68 70

2 AshHandlingPlant(AHP) 23 69 70

3Demineralized(DM)water

Plant32 69 70

4 CoolingTower 41 145 148

5 Chimney 36 117 148

6 FuelOil(FO)System 22 71 70

7WaterTreatmentPlant 36 76 70

Total 213 615 646

Source:CEA,IASLResearch..()Indicatesno.ofunits

BOPVendors

Source:IASLResearch


8/21



8

ForPrivate

Circular

Only

|May

28,

2010

|IASL

Research


BGRhasitsownsetofcompetitiveadvantagestodifferentiateitsofferingin thetu

BoP

space.

The

company

has

a

lot

of

inhouse

expertise,

particularly

with

a

strohousedesignandengineeringteam (~53%of the totalemployees),whichgivesco

overcost,design and scheduling of projects. Besides, over the years, the compan

augmented its product portfolio through a combination of in house development

strategic technological tieups with several international players. The company

currentlymanufactureabout50%oftheBoPpackagerequirementsinhouse,giving

edgeboth intermsofcostand lessersubvendormanagement.Additionally, itsp

trackrecord inmanagingequipmentandturnkeyprojectshelpsthecompanytofu

strengthenitspositionagainstnewentrants.

BGRENERGYADVANTAGE

StrongpresenceinMajorUtilitiesinIndialeadershippositionachievedthsuccessfulexecutionoflargeprojects

Turnkeyprojectdesign&executioncapability In house Design & Engineering Expertise for Civil & Structures, Mecha

ElectricalandC&Iworks

InhouseDesign&Engineeringofmajorsystemcomponents:Chimney,CoTowers,CoalHandlingPlant,WTPlant,OLTCSetc

LatestCADtools&analyticalsoftware ERPcompliant StrongProjectManagement&Executionteam IntellectualassetPowerplantengineering&interfacingexperience Morethan750manyearsofpowerplantexperiencedengineeringteam TechnologyorientedInhouseproductswithleadingcollaboratorsinthew

Projects ContractValue(Rscr) Status

CSPGCL

2x500MWThermalPowerStation,Marwa,Chhattisgarh1633 UnderExecution

MAHAGENCO

2x500MWSuperThermalPowerStation,Chandrapur,Maharashtra1632 UnderExecution

MAHAGENCO

500MWThermalPowerStation,Khaperkheda,Maharashtra998 UnderExecution

APGENCO

500MWKothagudemThermalPowerStation,Khammam,AndraPradesh793 UnderExecution

APGENCO

500MWThermalPowerStation,Kakatiya,AndraPradesh694.9 UnderExecution

GrasimIndustriesCPP

23CoalChittorgarh,Rajasthan44 Completed

TNEBCCPPValathur(PhaseI)

95GasTamilNadu59.4 Completed

RRVUNLCCPP,Dholpur

330GasRajasthan210 Completed

APGENCOVijayawadaTPS

1X500CoalAndhraPradesh579 Completed

IN-HOUSEMANUFACTURINGCAPABILITYANEDGE

Ma orOrder:

BoP

Source: Company,IASLResearch


9/21



9

ForPrivate

Circular

Only

|May

28,

2010

|IASL

Research


As seen from the above diagram, Interregional transmission capacity is likely to d

from19150MWinMarch`09to~38000MWby2012,whereastransmissionlinelen

likelytoincreasefromcurrent222,746ckmto293,690ckmby2012.

Source:CEA, IASLResearch

HugeCapacityadditionsintransmissionspacetobenefitsEPCPlaye

In order to meet the regional demandsupply mismatch & strengthens the e

network so as to reduce the T&D losses, the government has planned huge ca

additionsinthetransmissionspaceduringthe11th

&12th

Plans.

These capacity additions would entail huge investments over next 810

InvestmentinonlytransmissionsectorislikelytoincreasefromanestimatedRs.14

in11th

Planto~Rs.4600bnin12th

Plan,thusprovidinghugeopportunitiestothep

sinthetransmissionEPCspace.

Source:CEA,IASLResearch Source:CEA,IASLResearch

Source: CEA, IASLResearch


10/21

10

w w

Ta

ORDERRs116

Source

ForPrivate

w . i n d i a a

Rajasth

2x600MW

ilNaduElect

BOOKN

:Company,IAS

CircularOnl

v a n t a g e .

anRajyaVidy

KalisindhThe

ricityBoard

OSITION

Research

|May28,2

c o . i n

Project

utUtpadanLi

rmalPowerPl

x600MWT

F

Sour

India Adv

Member

10|IASLRe

EPCSPACE

BGRhastran

components

EPC contract

contracts is

Rs3,100cr,an

worthRs4,90

level, while t

progressing

theseEPCpro

However,me

makeitdiffic

order to mai

facility.Asar

manufacturintechnological

covers all s

manufacturin

becomeanin

ited("RRVU

ant,JalawarR

ermalPower

HEALTHY

TheCompany

which provid

order book,

International

contractsbei

OrderBook

ce:Company,I

antage Sec

f NSE. B

search

sformed itself

oexecuting

. It had won

or the 1*60

dthesecond

cr.Forbotht

he BTG wou

ell, with the

jects.

suresfromth

ltforBGRto

ntain cost co

esult,BGRen

g

boilers.

Bknowhow for

b and sup

gfacilityisex

egratedEPC

L")

ajasthan

Plant,Mettur

RDERBOO

hasarobust

s good reven

while the ca

contracts co

gexecutedb

AirFin

Coole

Environment

PowerProjec

asonDec.2

SLResearch

urities Li

E.MCX,

overtheyea

urnkeyBoPp

two major o

MW EPC of

orthe2*600

heseorders,B

ld be source

company alr

egovernment

bagEPCcontr

petitiveness,

eredintoa2

R

would

sewhich would

rcritical boil

ectedtobes

layer.

Or

(InR

K:

orderbookpo

ue visibility t

ital goods se

prise a mer

theoilandg

Engineering

ts

09

ited

DP. CDSL

s frombeing

rojects,andn

rders for the

a power pla

WEPCofa

GRwouldbe

from Dongf

ady having b

torestrictco

actsusingim

it is importa

yearlicense

up

manufabeprovided

rs for confi

tupinthene

erValue

.Millions)

9000

31000

sitionofRs11

the compan

gment contri

e 4% of the

sequipment

Oil&

Gas

Electrical

ameremanu

owgradually

EPC of pow

nt at Mettur

owerplanta

andlingtheB

ng, China. B

oked ~19%

petitionfro

ortedBTGco

nt to have a

agreementwi

cturing

facilitby Foster Wh

uration of

xt23years.

Und

Und

6bn,2.67xth

. Power con

utes ~3% of

order book,

ivisioninIraq

Equipment

Projects

acturerofa f

executing full

r plants. One

Tamil Nadu

Jhalawar,Ra

oPpackageat

oth the proj

f the revenu

overseaspla

ponents.Be

own manuf

hFosterWh

ies

for

boileler. The agr

001,000 M

hiswouldena

Status

rExecution

rExecution

erevenuefor

titutes ~93%

the order b

majorly due

.

e

e

e

b

o


11/21

11

w w

AirFin

Oil&G

Enviro

Electri

Power

Total

Order

Source:

ForPrivate

w . i n d i a a

D

Cooler

asEquipment

mentEngine

alProjects

Projects

acklogStatu

Company,IASL

CircularOnl

v a n t a g e .

ivision

ring

sasonDec.

Research

|May28,2

c o . i n

2009

India Adv

Member

10|IASLRe

Dom

RsIn

1,07

42.

341.

333.

109,7

111

ustomer

wi

OrderBack

ource: IASLRes

Source:Co

antage Sec

f NSE. B

search

4558

stic

illion

.00

0

00

00

4.00

30

se

breakup

Rajastha

SEB

38%

logStatus as

earch

pany, IASLRes

urities Li

E.MCX,

110077

1453

Interna

RsIn

42.

4,51

45

f

order

back

MahaGenco

18%

onDec.200

earch

ited

DP. CDSL

tional

illion

0

.00

8

log

TNSEB

24%

APGenc

4%

CSEB

16%

Turnkey

ProjectC

Power

Turnkey

ProjectC

Gas

Supplyo

Equipme

T

RsIn

1,1

4,5

34

33

109,

11

Engineering

ontracting

Engineering

ontracting O

Systemsand

nt

tal

Million

12.00

58.00

1.00

3.00

744.00

6088

i


12/21

12

w w

ForPrivate

w . i n d i a a

CircularOnl

v a n t a g e .

|May28,2

c o . i n India Adv

Member

10|IASLRe

FINANCIAL

TOPLINEG

Revenue (Top

net profit ro

Rs19303.29

Rs19303.29

theprevious

overthenext

5,000.00

10,000.00

15,000.00

20,000.00

25,000.00

30,000.0035,000.00

40,000.00

Margins

OPMshave

seen main

contributio

movement.

more towa

currencym

overFY10

9.409.609.80

10.0010.2010.4010.6010.8011.0011.20

Source: IA

Source: I

antage Sec

f NSE. B

search

OVERVIEW

OWTH

line) isgrowi

e 30% to Rs

illion during

illion in the

earendedM

threeyears.I

FY2007

(18mnths)

eeminglyt

declinedfro

ly because o

n of exports (

The compan

rds domestic

ovements.W

2E.

FY2007

(18mnths)

LResearch

ASLResearch

urities Li

E.MCX,

ngcatCAGR

1155.68 mill

the previous

earendedM

arch2008.W

tisobserved

FY2008

Revenu

havestab

11.06% inF

higher raw

fixed price or

y has conscio

rather than

expectOPM

FY2008 F

ited

DP. CDSL

f%overthe

ion in the ye

year ended M

arch2009 as

believether

hattoplineh

FY2009 FY

e EBITDA

lized07to10.82%

material cos

ders) towards

usly changed

export orders

storemainra

2009 FY2

OPM

periodof200

r ended Ma

arch 2008. T

gainst Rs152

evenuewillg

sgrownby2

2010E FY20

PAT

inFY09.The

s, adverse r

revenues) a

its order mix

to mitigate

ngeboundwi

10E FY201

709.Forthe

ch 2009 as a

p line rose 2

5.34million

owatCAGR

35%overth

11E FY2012

fall inmargin

venue mix (

d adverse cu

and is now

he risks of v

thin10.08%1

1E FY2012

d

e

E

h

r

o

0


13/21



13

ForPrivate

Circular

Only

|May

28,

2010

|IASL

Research


CAPEXPLANS

The company has a very high fixed asset turnover ratio, hovering ~20x (due t

business model, which focuses on project management); hence, it does not req

large

amount

of

capex.

The

company

plans

to

incur

~Rs50cr

capex

for

the

cufinancial year, which would majorly be used towards the acquisition of constru

equipment. For FY2011E, the management expects to incur capex of around R

(normal capex), along with Rs3040cr towards investment in heat recovery s

generators,takingthetotalcapextoRs80100cr.Notably,wehavenotfactoredthe

fortheplannedBTGforayintoourestimates.

The major funding requirement for the company, however, stems from the wo

capitalrequirement,astheindustryitoperatesinishighlyworkingcapitalintensive

~3334%ofthesalesbeingtiedupinthenetworkingcapitalrequirement.Goinga

weexpectthedebt/equityratiotohoverat~1.5x.

FINANCIALCHARTS

0.00

2.00

4.00

6.00

8.00

10.00

12.00

FY2007

(18mnths)

FY2008 FY2009 FY2010E FY2011E FY2012E

EBITDAMargin PATMargin

0%

10%

20%

30%

40%

50%

FY2007

(18mnths)

FY2008 FY2009 FY2010E FY2011E FY201

ROCE ROE

5.00

10.00

15.00

20.00

25.00

30.00

35.00

40.00

FY2007

(18mnths)

FY2008 FY2009 FY2010E FY2011E FY2012

EPS

10.00

20.00

30.00

40.00

50.00

FY2007

(18mnths)

FY2008 FY2009 FY2010E FY2011E FY2

P/E P/BV

Source:IASLResearch Source: IASLResearch

Source:IASLResearch Source: IASLResearch


14/21



14

ForPrivate

Circular

Only

|May

28,

2010

|IASL

Research


GROWTHSTRATEGY

Focuson

large

BoP

contracts

and

EPC

contract

o Effective Project Management skills and Inhouse Design & Engineeringcapabilitiestoaccessthegrowingdemandforpowerprojects

o ProvidesacompetitiveedgeoverCost,DesignandSchedule

Expansionofbusiness&operations

o Identify new competitive markets that provide cost and operatioadvantagestoclients

o AcquireTechnologyforequipmentforPower,Oil&Gasprojectso SynergisticacquisitionsandjointventurestoexpandBusiness

ExpansionofProducts&Customer

o Build technological capabilities to execute large, technically complexprojectsandservicesinOil&GasIndustries

o StrategicalliancesorconsortiaorjointventurerelationshipsforspecificprojectswithestablishedInternationalcompanies


15/21



15

ForPrivate

Circular

Only

|May

28,

2010

|IASL

Research


PEERCOMPARISON

BHEL BGREnergySys. Larsen&Toubro

NetSales

(Rs

in

Cr)

26513.26

1930.33

40187.00

PBIDT(RsinCr) 5216.20 240.60 6373.97

ProfitAfterTax(RsinCr) 3115.17 115.57 3758.02

EPS(UnitCurr.) 63.64 16.05 64.76

PBIDTM(%) 19.67 12.46 15.86

PBDTM(%) 19.54 9.46 14.71

PATM(%) 11.75 5.99 9.35

Reserve(cons.)(RsinCr) 12433.22 491.90 15708.99

FaceValue 10.00 10.00 2.00

Priceason10052010 Rs.2399.35pershare Rs.559.20pershare Rs.1544.25pershare

KeyRisk/Concerns

Government led investment: Any delay or slowdown in spending willsimilareffectonthepowerequipmentcompanies.Thismightadverselyim

therevenuesandprofitabilityofBGREnergy.

Volatile commodity prices and currency fluctuation may lead to depreprofits.

Stiff competition fromexistingandnew playersmay result ina furtherdrealizations.

Anyadversechangesinitsworkingcapitalcyclewillhaveanegativeimpaitscashflowsandimpactitsdebtprofile.

ource:Capitaline,IASLResearch

Note:DataasonFY200809


16/21



16

ForPrivate

Circular

Only

|May

28,

2010

|IASL

Research


0

20

40

60

80

100

120

BGREnergy BSE_CG BSE_SENSEX

BGRvsSensexvsBSECapitalGoods

OUTLOOK&VALUATION

WithIndiafacingapowerdeficit,theoutlookforthesectorisquiterobust.Duringth

and 12th Fiveyear plans, the government plans to enhance power generation ca

which will drive the demand for companys product thereby increasing the to

bottomline

of

the

company.

All

the

user

industries

are

in

asweet

spot

to

gain

fro

ongoing investment boom. On the back strong order book, from domestic and ov

business, BGR Energy Systems is expected to post strong volume growth over nex

years. However, the valuations have run up significantly since we initiated coverag

haveoutperformedthemarketsinthelastquarter.WeInitialCoverageonthestoc

aBUYrecommendationwithatargetpriceofRs730pershare.

Source:Cline,IASLResearch


17/21



17

ForPrivate

Circular

Only

|May

28,

2010

|IASL

Research


NCOMESTATEMENTS(Rs.Inmn) FY2007

(18mnths)

FY2008 FY2009 FY2010E FY2011E FY201

GrossSales 7,751.41 15,258.75 19,416.55 24,522.13 31,124.25 36,111

Less:ExciseDuty 53.42 113.26 147.13 159.09 203.9

NetSales 7,751.41 15,205.34 19,303.29 24,375.00 30,965.16 35,907

TotalIncome 7,754.78 15,270.84 19,620.36 24,692.07 31,265.16 36,207

Variable

Increase/(Decrease)inWIP (22.30) 28.79 (10.55) (12.43) 8.64 (9.31

RawMaterials 5,551.66 11,051.14 13,532.96 17,420.62 22,114.86 25,493

Manufacturing&OperatingExp 529.37 1,711.69 2,315.42 2,925.00 3,638.63 4,278.

Fixed

EmployeeCost 678.28 376.68 642.05 853.13 960.27 1,188.

Operating&OtherExp 157.14 483.63 734.46 732.28 1,031.11 1,213.

TotalExpenditure 6,894.15 13,651.93 17,214.33 21,918.60 27,753.51 32,164

PBDIT(Ops) 857.26 1,553.40 2,088.96 2,456.40 3,211.65 3,742.

nterest&Fin.Charges 17437% 26784% 57949% 619.24 766.32 941.8

PBDT(Ops) 682.89 1,285.56 1,509.46 1,837.16 2,445.34 2,801.

Depreciation

81.26 55.39 75.03 126.39

153.56 181.2

PBT(Ops) 601.63 1,230.17 1,434.43 1,710.77 2,291.78 2,619.

OtherIncome 3.37 65.51 317.07 317.07 300.00 300.0

PBT 605.00 1,295.68 1,751.50 2,027.84 2,591.78 2,919.

TaxProvisions 213.03 411.05 595.83 682.40 858.69 981.0

ProfitafterTax 391.97 884.634 1155.675 1,345.45 1,733.09 1,938.

CONSOLIDATEDFINANCIALS

Source:IASLResearch


18/21



18

ForPrivate

Circular

Only

|May

28,

2010

|IASL

Research


ALANCESHEET(Rsinmn)FY2007

(18Months)FY2008 FY2009 FY2010E FY2011E FY2012

OURCEOFFUNDS

quitycapital 108.00 720.00 720.00 720.00 720.00 720.0

eserves&surplus 721.14 4,017.47 4,919.01 6,074.69 7,420.13 9,153.2

hareholder'sfunds 829.14 4,737.47 5,639.01 6,794.69 8,140.13 9,873.2

ecuredloans 2,404.73 4,992.02 6,359.84 8,215.28 10,320.03 11,964.

nsecuredloans 59.43 34.99 730.14 848.61 959.74 1,035.9

otaldebt 2,464.16 5,027.02 7,089.98 9,063.89 11,279.77 13,000.

Deferredtax 355.93 747.10 700.00 723.55 711.7

MinorityInterest 15.36 26.51 27.96 21.57 25.35 24.96

otalliabilities 3,308.66 10,146.92 13,504.04 16,580.14 20,168.79 23,610.

APPLICATION

OF

FUNDS

rossblock 633.21 733.64 1,245.17 1,805.56 2,258.21 2,589.8

ess:AccumulatedDepreciation 249.17 206.42 268.06 394.45 548.01 729.2

Netblock 384.04 527.22 977.11 1,411.11 1,710.21 1,860.5

apitalWIP 30.19 10.97 54.16 60.30 61.89 87.11

oodwillonconsolidation 4.59 5.87 5.87 5.87 5.87 5.87

nvestment 2.80 1,514.04 5.30 5.30 5.30 5.30

nventories 295.31 149.69 139.68 150.22 146.84 133.9

Othercurrentassets 40.36 86.22 178.10 210.31 293.68 341.3

undrydebtors 3,688.00 7,360.28 12,788.57 14,842.18 17,987.84 21,387.

ash&bankbalance 929.02 3,070.30 6,151.50 7,210.78 8,957.21 10,369.

oans&

advances

879.49

2,662.74

6,432.29

7,631.40

9,324.31

10,974.

otalcurrentassets 5,832.18 13,329.23 25,690.14 30,044.90 36,709.88 43,208.

urrentliabilities 2,669.54 4,838.10 12,551.31 14,121.10 17,204.92 20,352.

rovisions 275.60 402.31 677.22 826.23 1,119.43 1,203.9

otalcurrentliabilities 2,945.14 5,240.41 13,228.53 14,947.34 18,324.35 21,556.

Netcurrentassets 2,887.04 8,088.82 12,461.61 15,097.56 18,385.53 21,652.

otalAssets 3,308.66 10,146.92 13,504.05 16,580.15 20,168.80 23,610.

ASHFLOW(Rsinmn)FY2007

(18Months)FY2008 FY2009 FY2010E FY2011E FY2012

etcashfromoperatingactivities (462.50) (1,696.43) 772.97 528.84 955.49 1,077.3

ashusedininvestingactivities (169.71) (1,631.44) 966.62 (547.57) (429.00) (333.92

etCashusedinfinancingactivity 1,376.20 5,469.14 1,341.61 1,078.00 1,219.93 669.28

etincreaseincash&cashequivalent 743.99 2,141.28 3,081.20 1,059.28 1,746.43 1,412.7

ash&Cashequivalents(OpBal) 185.03 929.02 3,070.30 6,151.50 7,210.78 8,957.2

losingCashbalance 929.02 3,070.30 6,151.50 7,210.78 8,957.21 10,369.

ource:IASLResearch

ource:IASLResearch


19/21



19

ForPrivate

Circular

Only

|May

28,

2010

|IASL

Research


RATIOANALYSIS FY2007

(18Months)

FY2008 FY2009 FY2010E FY2011E FY2012E

LiquidityRatios

urrentRatio

1.98

2.54 1.94 2.01 2.00 2.00

cidTestRatio 1.88 2.51 1.93 2.00 2.00 2.00

shRatio 0.01 0.59 0.47 0.48 0.49 0.48

LeverageRatios

ebt:Asset 0.74 0.50 0.53 0.55 0.56 0.55

terestCoverageRatio 4.45 5.59 3.48 3.76 3.99 3.78

DupontAnalysisROEDecomposition

AT/PBT(TaxEfficiency) 0.65 0.68 0.66 0.66 0.67 0.66

BT/EBIT(Interest

Burden)

0.78

0.86 0.87 0.87 0.85 0.82

BIT/Sales(OPM) 0.10 0.10 0.10 0.10 0.10 0.10

les/TotalAssets(AssetTurnover) 2.34 1.50 1.43 1.47 1.54 1.52

A/NW(FinancialLeverage) 3.99 2.14 2.39 2.44 2.48 2.39

OE 0.47 0.19 0.20 0.20 0.21 0.20

MarginRatios(%)

BITDAMargin 11.06 10.22 10.82 10.08 10.37 10.42

eTaxMargin 7.81 8.52 9.07 8.32 8.37 8.13

etProfit

Margin

5.06

5.82 5.99 5.52 5.60 5.40

WorkingRatios(Days)

ventory 13.91 3.59 2.64 2.25 1.73 1.36

ebtors 173.66 176.68 241.82 222.25 212.03 217.41

etWorkingCapital 135.95 194.17 235.63 226.08 216.72 220.09

ValuationParameters

E 15.73 46.47 35.57 30.56 23.72 21.21

CEPS 13.03 43.74 33.41 27.93 21.79 19.39

BV 7.44 8.68 7.29 6.05 5.05 4.16

V/EBITDA 8.98 26.75 20.13 17.49 13.52 11.69

V/SALES 0.99 2.73 2.18 1.76 1.40 1.22

Cap/sales 0.80 2.70 2.13 1.69 1.33 1.14

ource:IASLResearch


20/21



20

ForPrivate

Circular

Only

|May

28,

2010

|IASL

Research


IASLResearch:Email:[email protected]

NileshPandyaAVP InstitutionalBusiness,[email protected]

EquityResearch:

ManishShah Sr.ResearchAnalyst [email protected] 022661688

TusharDas ResearchAnalyst [email protected] 022661688

RuchitaKapoor ResearchAnalyst [email protected] 022661688

ManaliShah ResearchAssociate [email protected] 022661688

JinalShah ResearchAssociate [email protected] 022661688

Sales:

NileshPandya AVPInstitution [email protected] 02266168813 8

LiladharUdyawar Sr.Manager [email protected] 022661688

KeytoIASLInvestmentRankings

Buy:Upsideby>15,Accumulate:Upsideby+5to15,Hold:Upside/Downsideby 5to+5,

Reduce:Downsideby5to15,Sell:Downsideby>15

INDIAADVANTAGESECURITIESLtd.(www.indiaadvantage.co.in)

CorporateOffice: OmPlaza,VasanjiLaljiRoad,Opp.RailwayStation,Kandivali(W),Mumbai400067.

TelPhonenos.:022 66168800Faxnos.:02228092800.


21/21




Disclaimer:Thisdocumenthasbeenpreparedby IndiaAdvantageSecurityLtd. IASL isafullservice, integratedportfoliomanagementandbrokeragegroup.Ourre

analystsandsalespersonsprovideimportantinputintoourinvestmentbankingactivities.Thisdocumentdoesnotconstituteanofferorsolicitationforthepurchaseo

ofanyfinancialinstrumentorasanofficialconfirmationofanytransaction.Theinformationcontainedhereinisfrompubliclyavailabledataorothersourcesbelieved

reliable,but

we

do

not

represent

that

it

is

accurate

or

complete

and

it

should

not

be

relied

on

as

such.

IASL

or

any

of

its

affiliates

shall

not

be

in

any

way

responsible

f

lossordamagethatmayarisetoanypersonfromanyinadvertenterrorintheinformationcontainedinthisreport.Thisdocumentisprovidedforassistanceonlyand

intendedtobeandmustnotalonebetakenasthebasisforaninvestmentdecision.Theuserassumestheentireriskofanyusemadeofthisinformation.Eachrecip

thisdocumentshouldmakesuchinvestigationasitdeemsnecessarytoarriveatanindependentevaluationofaninvestmentinthesecuritiesofcompaniesreferredto

document(includingthemeritsandrisksinvolved),andshouldconsulthisownadvisorstodeterminethemeritsandrisksofsuchinvestment.Theinvestmentdiscus

viewsexpressedmaynotbesuitableforallinvestors.Weandouraffiliates,officers,directors,andemployeesmay:(a)fromtimetotime,havelongorshortpositionsi

buy or sell the securities thereof, of company (ies) mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or

compensation or actasadvisoror lender / borrower tosuchcompany (ies) or have otherpotentialconflictof interestwithrespect toanyrecommendation andr

informationandopinions.Thisinformationisstrictlyconfidentialandisbeingfurnishedtoyousolelyforyourinformation.

Thisinformationshouldnotbereproducedorredistributedorpassedondirectlyorindirectlyinanyformtoanyotherpersonorpublished,copied,inwholeorinpa

anypurpose.Thisreportisnotdirectedorintendedfordistributionto,oruseby,anypersonorentitywhoisacitizenorresidentoforlocatedinanylocality,state,c

or otherjurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject IASL and affiliates t

registration or licensing requirements within suchjurisdiction. The distribution of this document in certainjurisdictions may be restricted by law, and persons in

possessionthis

document

comes,

should

inform

themselves

about

and

observe,

any

such

restrictions.

The

information

given

in

this

document

is

as

of

the

date

of

this

andtherecanbeno assurancethat futureresultsor eventswill be consistentwiththis information. This information issubject tochangewithoutany priornotice

reservestherighttomakemodificationsandalterationstothisstatementasmayberequiredfromtimetotime.However,IASLisundernoobligationtoupdateorke

information current. Nevertheless, IASL is committed to providing independent and transparent recommendation to its client and would be happy to provid

information in response to specific client queries. Neither IASL nor any of its affiliates, directors, employees, agents or representatives shall be liable for any da

whetherdirect,indirect,specialorconsequentialincludinglostrevenueorlostprofitsthatmayarisefromorinconnectionwiththeuseoftheinformation.Theanal

this report certifies that all of the views expressed in this report accurately reflect his or her personal views about the subject company or companies and its o

securities,andnopartofhisorhercompensationwas,isorwillbe,directlyorindirectlyrelatedtospecificrecommendationsorviewsexpressedinthisreport.

Analystholdinginstock:No.

Documents

BGR Intial Coverage